How did London bankers help hide the wealth of the richest & most criminal?
One trillion dollars yes 1 trillion dollars is stolen from developing countries every year & a large amount of it is transferred through London or its satellite tax havens. Is.
This is called offshore money laun-dering but what does it mean ? It sounds hard but it is basically a simple idea. It was invented by City of London United Kingdom the center of economic activity on par with New York Wall Street.
It is 1 of the most important inventions in UK British history. Today world could be different without concept of offshore.
How to avoid repeating mistakes
Allies were close to victory in 1944 & were planning for the post wa-r period. He wanted to create a better world global financial system to avoid a re emergence of the economic crisis of the 1930s & devastation of World Wa-r II.
System was named after small US American complex where it was negotiated: Bretton Woods.
Location of the Bretton Woods system in the US United States
Vanessa Ogle a historian at University of California Berkeley explains that the system set out the rules for cross border remittances.
Any major transfer of money from outside or inside could create instability. This had happened even during the wa-rs. This meant stopping the payment or collection of large sums of money so that country could stabilize its currency & secure its economy.
British bankers have recognized a secure financial system in which hands are tied. This is how Global world was rebuilt. This meant that role of the City of United Kingdom London was hidden.
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10 years later
However City remembers the days when it was the heart of the great empire. After the mid 1950s bankers began to worry. It is like driving a high speed car at 20 kilometers per hour said a well known banker.
Things are getting better Ogle said. German economy showed signs of recovery and production.
Bankers were upset by these measures & started an effort not to violate the principles of Braden Woods but to continue working legally.
1 of the city many banks was the Midlands which despite being small wanted to excel but under the rules banks could not compete with each other for customers.
Midland Bank needed more money. In 1955 he came up with the idea that there was a bank nearby whose problems were reversed. The coffers of Soviet state bank Moscow Narodny were full of dollars.
Ogle said he feared the money would be confiscated if it was transferred to the US United States. It was the Cold War era so the Russian bank money was in London.
So 1 bank had a lot of money and the other had no money. They just had to figure out a way out of the caretaker rules.
Someone in the Midlands thought they did not need to buy dollars. They can also borrow which does not apply to UK British restrictions on foreign currency purchases.
These dollars could be used to buy British pounds which could be used as a loan. In this way the Russian bank not only remained out of reach of the US United States but also began to make a profit on its own money.
Details are very complex but in simple terms it can be said that with this deal the Russian bank made money by avoiding US sanctions & the Midlands made money by avoiding British sanctions.
Things would have continued like this had it not been-for the shocking news from Middle East.
A big business opportunity
In 1956 the Suez Canal became an Egyptian asset previously controlled by Britain & France. London & Paris sent troops but the US United States opposed it. This led to a shameful failure.
Midland Bank 1955
Oxford historian Katherine Schenk says the Bank of England & the Treasury Department reduced the international use of the pound making the dollar more attractive because it was out of its control.
The City banks used to trade in pounds. As access to pound diminished they began to look for new sources of funding.
Other banks followed the same path as the Midlands & began borrowing dollars for day to day business. That changed everything.
According to him these dollars were exempted because the rules & regulations of the Federal Reserve Bank did not apply to them. In this way despite the Bretton Woods system and the current restrictions in the country City banks have opportunity to do business differently.
The City thus invented the most important financial system of the twentieth century.
The concept of the euro dollar
They called it the Euro dollar because it was a dollar & it was not It depended on what was more profitable at time. Bankers were like pirates on a ship with a sea of money under their feet. Banks were making profits by ignoring the same principles that every one was following.
But were they going to point out legal flaw they discovered?
He took a term from Maritime Law that states that the laws of land do not apply to you if you do not come within the borders of a country at sea. So you are offshore.
According to Catherine it soon became an offshore interbank market that was beyond the reach of any country financial regulator. No one in British government seemed to know what was happening.
But the leaders of the Bank of England knew this & they liked it very much. After the end of the wa-r & the economic crisis the engine of City of London United Kingdom had finally begun to warm up.
Foreign banks immediately started setting up branches in London UK so that they too could take advantage of this unsupervised market.
Over the next 2 decades money flowed from the City of London UK & ignored the restrictions of the Bretton Woods system. Efforts to protect financial stability and quality of life to protect money transfers have failed.
A paradise
Thus money laundering was introduced in which offshore market money was protected from external surveillance but London UK was not the best place to hide money. The reason was the greatest enemy of wealth of the richest people: taxes.
If British bankers wanted to help-their clients more they had to find more loopholes in the law. They needed a place where money could be kept safely.
He was lucky not to have to go far.
Nearby was an island in the English Channel called Jersey which had-been under British rule for nearly a thousand years. It was not part of the united kingdom UK but the pound was used & had its own tax system.
John Christensen a senior official in the Jersey administration who later campaigned against tax havens said: It was a tax haven.
If this island had relaxed rules every one could have made a huge profit and that is what happened. Jersey politicians removed a major obstacle.
Bankers were already turning to the City of London to avoid US United States America sanctions on the dollar trade. He also escaped British sanctions by transferring his money to secret Jersey bank accounts.
Move halved the tax levied on them. In the 1970s British corporate tax was over 50% compared to 20% in Jersey.
jersey was also the best in region because they could go from London to Jersey for a meeting Christensen said. Flight departure in the morning & return at night.
Gradually Jersey became a satellite tax haven for the City of London.
Other banks in North US America & Europe also opened branches on the island & Jersey was just the beginning.
Idea of money laundering might not have come into being without the help of the city because it is not so easy to transfer money from criminal world to another place.
Arrangements to make more paradises
As the British colonies became independent the United Kingdom British Empire seemed to shrink on the map. UK British controlled Bermuda Cayman Islands the British Virgin Islands Gibraltar and Anguilla were so poor & remote that they became independent.
However they had a connection to Britain in the national resources of exploitation. Like Jersey politicians there have created loopholes in law to remove restrictions on remittances.
These areas also became tax havens in which low taxes & client privacy were maintained so that consumer activities could not be monitored.
According to Ogle 1 of the advantages was the common doctrine of common law in the British Empire which made negotiations UK much easier.
A unit to track illicit wealth in the UK
There were also united kingdom British citizens in these areas. If an American lawyer wanted to start a company registration business in Cayman Islands he could keep an eye on a small group of officials because there was no tax & thus the local leadership could be persuaded. That's the decent thing to do & it should end there.
So how much money was spent on tax evasion & how much was spent on human trafficking dru-gs weapons corruption & theft?
Tracing money transfers inside Jersey was even more difficult
They used to bring suitcases full of money.
There is not much data before 1980 but every time a door to past opens & we get some information about this paradise.
After the major crises in the 1960s & 1970s, there were occasions when money laundering money went to criminals Ogle said. These were rare cases but in fact after investigation it was always clear that money of the criminal world has-always been a part of the success of the offshore business.
Information confidentiality measures & privacy principles made it extremely difficult to determine where money was coming from & what the main asset was.
All sorts of money came from Jersey Christensen said. There were also people who brought suitcases full of money on private jets.
They saw it all with their own eyes. I worked for a large accounting company in trust management department. I started to see who my clients were. I met people from all walks of life.
It is not just about tax evasion it's about illegal party financing illegal financing & other activities. The money that reached Jersey always came from dictatorial states.
Money came from all over Global world. After the money was transferred to Jersey an offshore business was created which included trusts and companies under law.
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But how did Jersey & other tax havens hide from British financial institutions ?
Shell companies make a search difficult
The safest secret
According to Christensen there is a concept of leadership in language of money laundering in which changing locations secures a secret & makes it extremely difficult to reach real source of money.
UK London is at the top of this ladder so it was not uncommon for a corrupt ruler to find some traces of London United Kingdom on this ladder.
So if the authorities in UK London want to know what the real source of the money is they will ask Jersey authorities & find out that they have a trust there. No 1 will say who is the benefactor behind it because at the time of registration it was not necessary to say in any country who is the benefactor.
Then you knew the trust-had a number of companies in UK British Virgin Islands - elsewhere.
Christensen refers to these companies as shell companies which in Spanish means paper ghost or legendary companies. But what did these shell companies need ?
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It's a company that has no commercial purpose said Graham Bro who specializes in shell companies.
It has some assets that are not necessarily illegal. It has no employees no offices & it sells nothing. But it can be used in other ways & there is no other reason for its existence.
An important aspect of money-laun-dering is that not every company information is verified at the time of registration
Why are UK British so helpful in money laun-dering?
United Kingdom is considered a low risk area for crime he said.
If bank accounts & companies are set up in these different places transfer of money becomes easier. If these companies are UK British & their leaders are UK British citizens then the authorities seemed to think that their operations would be carried out legally in another country as well.
It easy to build companies. You can make them from anywhere in world by spending 12 on a computer. You can say that you are a space creature that lives on the moon & can form a company with that information.
You can create a whole identity through which millions of dollars can be sent without having to say who you are he said. You can hide behind others because there is no system to verify you.
It is illegal to lie to form a company but the punishment for this crime is very small. People who want to hide their stolen money & voluntarily move it from one place to another have managed to do so using the British corporate system & keeping their identities secret.
You'll be amazed at how many companies are owned by another company which then operates under another company Bro said. You can lose your balance while investigating.
In the United Kingdom UK more : more new applications are filed every day to the Registrar of Companies Company House. It does not have the resources or power to verify every company information.
About 3,500 companies are added daily with each company providing 15 to 20 data points. About 100,000 data points are added to the system on a daily basis.
How can you manage all this with limited resources & ancient IT facilities ? His answer was that it is impossible & criminals are aware of it.
There is still a lot to be done in City of London & it will take a lot of encouragement.This article is based on journalist & author Oliver Blue How to Steel a Trillion produced by British Radio Four's Phil Fatlin.
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